Weekend Recap

For the most part I stayed away from the computer and the news this weekend. I did come across a couple of must reads in the Wall Street Journal though.

The first is Brian Carney’s weekend interview with Anna Schwartz, Ms. Schwartz is well known economist and her views on the current economic crisis are quite interesting.

Bernanke Is Fighting the Last War

‘Everything works much better when wrong decisions are punished and good decisions make you rich.’

By BRIAN M. CARNEY

On Aug. 9, 2007, central banks around the world first intervened to stanch what has become a massive credit crunch.

Since then, the Federal Reserve and the Treasury have taken a series of increasingly drastic emergency actions to get lending flowing again. The central bank has lent out hundreds of billions of dollars, accepted collateral that in the past it would never have touched, and opened direct lending to institutions that have never had that privilege. The Treasury has deployed billions more. And yet, “Nothing,” Anna Schwartz says, “seems to have quieted the fears of either the investors in the securities markets or the lenders and would-be borrowers in the credit market.”

The credit markets remain frozen, the stock market continues to get hammered, and deep recession now seems a certainty — if not a reality already.

Most people now living have never seen a credit crunch like the one we are currently enduring. Ms. Schwartz, 92 years old, is one of the exceptions. She’s not only old enough to remember the period from 1929 to 1933, she may know more about monetary history and banking than anyone alive. She co-authored, with Milton Friedman, “A Monetary History of the United States” (1963). It’s the definitive account of how misguided monetary policy turned the stock-market crash of 1929 into the Great Depression.

Since 1941, Ms. Schwartz has reported for work at the National Bureau of Economic Research in New York, where we met Thursday morning for an interview. She is currently using a wheelchair after a recent fall and laments her “many infirmities,” but those are all physical; her mind is as sharp as ever. She speaks with passion and just a hint of resignation about the current financial situation. And looking at how the authorities have handled it so far, she doesn’t like what she sees.

Federal Reserve Chairman Ben Bernanke has called the 888-page “Monetary History” “the leading and most persuasive explanation of the worst economic disaster in American history.” Ms. Schwartz thinks that our central bankers and our Treasury Department are getting it wrong again.

To understand why, one first has to understand the nature of the current “credit market disturbance,” as Ms. Schwartz delicately calls it. We now hear almost every day that banks will not lend to each other, or will do so only at punitive interest rates. Credit spreads — the difference between what it costs the government to borrow and what private-sector borrowers must pay — are at historic highs. Read the rest…

The Second is Scott Gottlieb’s Op Ed on Drug research, Dr. Gottlieb is a practicing physician and a resident fellow at the American Enterprise Institute, his column examines how government policies are stifling research into drugs to treat common medical problems.

How Obama Would Stifle Drug Innovation

If you want cutting-edge health care, don’t make it a cost-controlled commodity.

By SCOTT GOTTLIEB

Pfizer recently said it’s exiting the development of drugs for common conditions like heart disease. This is part of a shift underway in the pharmaceutical industry to give up on routine medical problems in favor of discovering “specialty” drugs for rare diseases and unmet medical needs like cancer.

The shift is driven in part by the industry’s critics in Washington, who have long maligned drug companies for targeting too many routine medical problems with drugs that were “merely” tweaks on existing medicines. Now these same detractors, led by House Democrats, are proposing controls on access to and eventually pricing of the specialty drugs as well. Under a Barack Obama presidency, this is one way they’ll pay for the candidate’s plan to create a Medicare-like program for the under-65 crowd. These new controls — based on a view of medical care as a commodity to be purchased at the lowest price, with little allowance for innovation — could push drug development over a tipping point.

Specialty drugs offer significant health benefits but for a high price, reflecting the difficulty of developing them. The regulatory process for getting them approved is more uncertain, since the diseases are poorly understood or haven’t been tackled before in clinical trials. Enrolling patients with rare conditions is also expensive; they are harder to recruit and often need to undergo more extensive testing to monitor the progress in trials. It can cost less than $5,000 to enroll a single patient in a trial for a primary care drug such as a blood pressure pill, but up to $70,000 for a big cancer study and more than $100,000 for some very rare diseases. Specialty drugs that were once tested on hundreds of patients are now often required by the Food and Drug Administration (FDA) to be tested on thousands.

Success rates are low. On average, a drug stands an 11% chance of making it through clinical trials and reaching patients. Cancer drugs only have a 5% chance of clearing these hurdles. Specialty drugs are also harder to distribute and by definition have a much smaller market for sales. Read the rest…